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Breaking Down The 4th Quarter GDP Components

Friday's first estimate of fourth quarter GDP growth was disappointing on a number of fronts. The print of 2.6% annualized economic growth was well below economist estimates of 3.2% growth. It's also a bit of a letdown coming off of the 3rd quarter's torrid 5.0% annualized rate of economic growth.

Analyzing the various components of GDP relative to the 3rd quarter shows the disappointing results came from two specific areas. The first area of weakness was the government where a collapse in defense spending in the 4th quarter by the Federal Government created a drag on GDP relative to the 3rd quarter.

The other segment of GDP which contributed to the weak print was global trade. Surprisingly, exports were a net benefit to GDP despite the weak international back drop and strong dollar. Unfortunately, when looking back relative to the results of 3rd quarter GDP, exports fell sequentially. Imports were an area of GDP that contracted significantly in the 4th quarter. The big headwind in imports was largely due to the strength in the U.S. dollar.

The consumer did provide a modest boost to GDP growth but it was not nearly enough to compensate and make up for the headwind the strong dollar created on trade. Real estate continues to be a non-factor in GDP. Fixed investment was solid in the 4th quarter, albeit the rate of growth was slower than what we saw in the third quarter.

The overall trends in the fourth quarter show visibly weaker trends than what we saw in the third quarter. The anticipated consumer strength from the drop in oil prices did translate to some GDP growth, but it was not enough to compensate for other global trends that adversely impacted GDP. The report indicates more of the same when it comes to trajectory of the overall economy.